Q3 2021 Invitae Corp Earnings Call

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[music].

Okay.

Ladies and gentlemen, thank you for standing by my name is Brent and I will be your conference operator today.

At this time I would like to welcome everyone to the <unk> third quarter 2021 Financial result conference call.

Lines have been placed on mute to prevent any background noise.

After the Speakers' remarks, we will have a question and answer session. If you would like to ask a question at that time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question again pressing star one.

I would now like to turn the call over to MS. Amy had chuck's. Please begin.

Thank you operator, and good afternoon, everyone. Thank you for joining us for our third quarter 2021 financial results call. Joining us today are Sean George our CEO and Roxy Wang our CFO. We're also joined today by two leaders within our oncology group Vishal <unk> President of our retail oncology and Dr. Rakesh Patel, a founder of <unk>.

Neon and now serving as <unk>, Chief Medical Officer, and digital health.

Before we begin I'd like to remind you that various remarks that we make on this call that are not historical including those about future financial and operating results plans and prospects, but this of our business strategy plans to integrate and manage businesses, we acquire market opportunities future products services, our product pipeline and their timing.

Demand for and reimbursement of our services and investments in our infrastructure and operations.

These statements constitute forward looking statements within the meaning of the safe Harbor provisions of the private Securities Litigation Reform Act.

It is difficult to accurately predict demand for our services and therefore actual results could differ materially from our stated outlook state.

Statements on company performance assume among other things that we don't conclude any additional business acquisitions investments restructurings or legal settlements.

We refer you to our most recent 10-Q in particular the section titled Risk factors for additional information on factors that could cause actual results to differ materially from our current expectations. These forward looking statements speak only as of the date hereof.

As you listen to today's conference call. We encourage you to have our press release available, which includes financial results as well as key growth metrics and commentary on the quarter.

To supplement our consolidated financial statements prepared in accordance with the generally accepted accounting principles in the United States or GAAP, we monitor and consider several non-GAAP measures.

We exclude from our non-GAAP operating result, as applicable among other items amortization of acquired intangible assets.

Acquisition related stock based compensation post combination expense related to the acceleration of equity grants.

Our bonus payments in connection with the Companys business combinations.

<unk> for the fair value of certain acquisition related assets and liabilities, including contingent consideration and acquisition related income tax benefit.

We exclude from our non-GAAP cash burn as applicable changes in marketable securities.

Cash received from equity financing and debt and cash received from exercises of warrants.

Non-GAAP measures may include cost of revenue gross profit operating expense, including research and development, selling and marketing and general and administrative other income expense net as well as net loss and net loss per share and cash burn. We encourage you to review our GAAP to non-GAAP reconciliations which are available in the press release any impending.

Of the earnings slide deck with that I'll turn the call over to Sean.

Thank you Amy.

Before we get started I want to emphasize that towards the end of our call Roxy will be outlining a set of key business metrics, we will be using going forward as a dashboard for our business model success.

As our platform is developed in our business expands from testing services into other areas. We've been working to provide smarter and more relevant measures. In addition to those used traditionally and life science sectors.

We will refer to those several times on this call and will rely on that new dashboard heavily going forward.

The headline in the quarter revenue growth revenue grew more than 65% over last year's Q3 period.

Which with all things considered keeps us comfortably within our longer term growth targets and number of patients. We serve grew by 89% over last year's third quarter up about 3% over this year's second quarter.

During the summer months, we typically experienced some seasonality as you can see on the charts, but this year slowdown was a bit more pronounced and longer lasting than the past couple of years. It is difficult to determine how much of that was unusual seasonality and how much of that was COVID-19 related.

We are seeing some pickup in recent weeks, but are being cautious with our guidance for the remainder of the year in case those impacts persist.

Reflecting on the long term view as you can see the year over year topline growth across the platform demonstrates our continued progress toward meeting the immense unmet demand for the use of genetic information to healthcare.

Takeaway here aside from any short term revenue fluctuation is that we are tapping into something unique at <unk>.

Since the advent of genomic medicine now 20 years ago, we are in the midst of a fundamental shift in not only medicine, but in how we view, our health and wellness family planning disease management and aging.

In view is a time when many diseases, we'll have a well understood risks that can be minimized and even staved off and therefore, when they arrive can be rendered a chronic condition to be managed for years or even decades.

But that future is only a reality with genetic information derived through testing early and often and.

The benefits will be accelerated with the tracking storing analysis and understanding of health and health related data for individuals families and populations.

While the investment to make that future reality is large and the timelines long.

That can be created is a mess we.

We believe that the ability to identify those at risk for disease detection diagnosed the onset that those diseases earlier use that information to guide preventive measures were targeted treatment and monitor the success of that treatment will be the standard of care for individuals throughout multiple stages of life.

The company that can deliver that standard will be transforming very large and durable markets in health care.

Furthermore, those large durable markets are all increasing in size in each of these four primary lifecycle areas fundamental drivers of adoption over the next two to three years are quickly coming into focus and we will create the need for our services that we believe far eclipse the ability of today's system to better treat or even outright prevent disease.

Much of the tailwind is coming from the rapidly expanding biopharma pipelines full of genetically targeted therapies. Some.

Some is coming from a better understanding of the improvement to outcomes and cost utility of using this information.

Some is coming from changing perceptions and attitudes about the role of the patient in their own health care and engagement from those paying for it.

And much of it is coming from the exponentially growing volumes of evidence that this shift to the shift to better medicine.

For example, the study being presented today at the American Heart Association meeting that found broad genetic testing identified clinically relevant variance for one in five patients suspected of having a heritable cardiovascular conditions.

Two thirds of whom were projected to have clinical management implications in more than 10% of which would've been missed using a narrower and narrower testing approach.

A little over a week ago I read a Washington post article about how a 34 year old marathoner, new mom to a 10 month old son dropped to the payment at mile eight of the race.

He kept alive by medically trained spectators that happen to see it.

Her father died of a heart condition at 53, and but for a brief call out to that fact really nothing to note about the role of how genetic information can be used to prevent such a narrow escape.

That will change we believe rapidly and as an example, the market for the use of genetic information in cardiovascular in cardiopulmonary pulmonary disease could be as large as that for oncology.

Which can give insight to our formula for growth. We are building a platform that can help our customers move to our risk assessment screening prevention or therapy selection and ongoing monitoring.

And that platform will help that individual make the most informed decisions about their health as well as generate the real word rolled data and network connections needed to put effective next steps in their hands.

Today, our business can be measured by the progress along that front.

Apology reproductive health pediatric and rare disease and in addition, we've recently broken out the part of our business that utilizes patient owned data and patient connections generated every step along the way.

In the future, we will be adding more information that we can provide for the patient at each stage more capabilities to our data platform and partner network as well as adding new disease areas or stages of life, such as cardiovascular disease, I mentioned, a few minutes ago.

As I mentioned before and very importantly later in the call Roxy will lay out the key business drivers and financial metrics that we'll be using to measure our overall progress against our model.

Im hoping that using these are signposts, we will be able to map for everyone that journey from where we are today to the future. We are certain is coming.

Given just how much is going on at and Vijay any given month of the year, it's not possible to cover it all on our quarterly calls, but we'd like to at least give a little more insight into the near term drivers of our business. So each quarter, we'll spend a little more time on one of our key areas of revenue growth. This.

This month, we will focus on our oncology platform, which is especially relevant since the products and services coming online from that group will be important drivers of revenue and margin growth in the coming years.

Vishal secret leads our oncology business and I've asked him to provide some additional clarity on the product plans and clinical trial activity that underscores our potential to walk our customers from risk to hopeful remission in the near future.

I have also invited Dr. Rakesh Patel, our Chief Medical Officer for digital health to join US today rock as an oncologist and was a practicing physician for more than 17 years before becoming an entrepreneur co founding the med Neon digital health platform, which <unk> acquired in the second quarter of this year.

Rockwell outlined how those products in studies dovetail with our digital health platform to benefit patients physicians families and the broader healthcare ecosystem.

I'll hand, it over to you first vishal.

Thank you Sean.

Apology, we have an active pipeline to support testing across efficient journey.

I will provide an update on our product roadmap, which includes a vibrant combination of tests that have been part of the <unk> portfolio for years innovative tests acquired with the Archer Dx integration and new tests on the horizon.

And the Germline testing category, where <unk> has been a leader for years, we added an RNA offering towards DNA Germline tests, this year and plan to expand into polygenic risk score in 2022.

Blind testing showed impressive growth in 'twenty, one and with our expanded offerings, we expect growth to continue through 2022.

These additions are a differentiator given the multitude of recent third party clinical studies verifying the benefits of combining germline and somatic testing and defining risk and the best course of treatment and V taste, the only company developing and combining germline or somatic testing on one platform.

On the research use only front or <unk>, we plan to launch our expanded DNA based kit offerings by the end of this year that offering will include testing for microsatellite instability also known as MSI addressing a growing demand from clinicians. We're also expanding our <unk> offerings to include tumor mutation burden or <unk>, an important biomarker for <unk>.

Therapy selection.

We continue to innovate on our centralized lab offerings lab offerings front with a series of laboratory developed tests being stood up in the coming year in 2022, we plan to launch our clinical offerings for personalized cancer monitoring PCM, which is our tumor derived tests, while our initial body of research demonstrates the accuracy of our MLD.

Test to monitor and detect recurrence in lung cancer will be pushing forward that PCM is a pan cancer offering, giving us what we believe view as a distinct advantage in this emerging and important market.

Later in the year, we plan to expand our centralized somatic offerings to include a comprehensive therapy selection test that is informed by DNA RNA and protein.

This therapy selection capability is similar to Archer stratified offering, but we will be using alternate trade names as we stand up our <unk> offering due to commercial IP brand and other factors.

Finally in 2022, we plan to kick off our development work on an early detection assay for cancer screening purposes.

On the in vitro diagnostics, our IBD front, where demand for decentralized genomic testing is growing we're moving towards creating product and service beachheads, where no competitors are today, we plan to launch our first CE Mark IBD kit products in select European markets in Q1 of 2022.

These first test will include our fusion flex Dx and our liquid flex DFS tests, both tests will enable any facility with sequencing technology and our solutions to accurately profile solid tumors and blood samples for therapy selection at their facilities.

As a major step towards satisfying the pent up demand for local and regional genomic testing capabilities, particularly among EU countries and leading academic cancer centers. It will allow us to expand our customer base in Europe and parts of Asia.

Outside of the EU, we're submitting additional claims for IBD solutions in Japan in 2022, which will help labs running the tests get higher reimbursement, therefore increase adoption with a launch of our IBD products outside the U S. We expect strong adoption of our tests, especially in countries where testing is heavily decentralized.

While were launching these products for our customers in Europe and Asia, We will continue to work with regulators in the U S to finalize the requirements for a launch of those kits and a decentralized commercial strategy here in the U S.

Based on the feedback from the FDA, we believe that we have a good roadmap for FDA approval for IBD products, including our path forward as an IBD for our PCM tests.

In the past and Vito has avoided highlighting ongoing individuals' studies, but the fact is the company is making substantial investments in resources to partner with Kols from across the globe to better understand and highlight our approach to personalized medicine and the use of clinical data and driving the patient experience and better outcomes altogether we.

Believe these studies underscored the value of our current products and our new product launches planned for 2022 on.

On a high level. This year, we expanded the case for our hereditary cancer test with multiple publications, including intercept a collaboration of Germline testing across tumor types and we demonstrated the importance of our Archer IBD test for met exon 14 detection and.

In 2022, we anticipate a wealth of data to support our PCM product, including treats Rx presentations and publications data Readouts from retrospective multi tumor PCM studies with academic partners, including mass Gen and MSA as well as early signals from our prospective PCM studies, including our GAAP and Maria.

In 2022, we have additional hereditary publications plant as well as furthering our support of the intercept trial with tumor profiling in multiple cancer types.

Then in 2023 additional prospective PCM trials are expected to be blossoming, including Mardi guided trials. Meanwhile, we continue to we intend to continue our participation in important projects pushing forward best practices in our field, including the blood pack consortium friends of cancer Research HRD project and the personal.

<unk> Medicine coalition.

I'll conclude by highlighting the Maria trial, which is being initiated by the end of next month Mario stands for MLD assay value, which recurrence in response why our tumor derived assessment.

It is the <unk> led study working with academic and community collaborators to use PCM as a means of risk stratification, a surveillance tool and a therapy monitoring tool across multiple cancer types. This will be a global study and we expect initial readout in 2022.

I will now hand, the floater, Dr. Rakesh Patel, who will walk us through how our expanded end to end testing portfolio integrates with the Castro patient and provider journey as well as the importance of digital health and data platform rock.

Yes.

Thank you Vishal.

The emerging practice of precision clinical oncology involves multiple applications of molecular testing across a patient's lifetime from before they are ever diagnosed to well after they're treated and achieve remission.

First of all mutation analysis is now routinely utilized for diagnosis of hereditary cancer syndromes for already.

Diagnosed patients biomarker profile testing of the primary tumor to detect actionable mutations has become an integral part of cancer therapy.

Since the molecular makeup of the tumor may significantly evolve over time during treatment.

Monitoring of patients is critical to be able to detect resistance mutations as early as possible and adjust therapy when needed to.

Tumors, almost always shed their fragments into patient's bloodstream, so called liquid biopsy or the analysis of circulating DNA holds great promise for noninvasive detection of molecular markers. It can be used as an alternative to tissue based testing when biopsy is not an option or the quality or quantity of the tissue samples not sufficient.

It can also be used for early cancer detection to predict the likelihood of relapse of diagnosis or to monitor response to neo adjuvant therapy recurrence after adjuvant therapy or treatment resistance.

We believe in be taken provide critical knowledge that will guide and facilitate every stage of a patient's cancer journey.

From an oncology practitioners perspective, the digital health platform is just as critical with complex preventive measures and array of testing capabilities and rapidly expanding treatment pathways cancer is the most decision dense disease. We are building an end to end platform that keeps providers informed and in turn empower.

A patient for shared decision making.

Importantly cancer risk assessment and genetic testing is not a onetime event as not only doesn't individuals' medical and family history changeover one's lifetime, but a single individual that may benefit from multiple types of genetic tests, but before or after and after a cancer diagnosis.

There was a large amount of genetic information and novel therapies that are now available and keeping providers updated of the rapidly changing guidelines is challenging.

Patients relocate or change your providers frequently having a trusted direct patient engagement over time is paramount.

The most effective way to treat cancer is to never get one and in that context, we have developed a robust capability focusing on population health genetic cancer risk assessment and predictive analytics ideally before I cancer is diagnosed with the goal of preventing it altogether.

Outcomes are usually better when diseases caught early.

Early disease detection remains a core focus area.

Once the cancer is diagnosed clinical decision support tools for an accurate diagnosis leveraging multidisciplinary oncology expertise in molecular profiling of tumors is key to develop a unique treatment plan for each patient with targeted precision therapies.

Following multi disciplinary treatment being connected to the patient to monitor outcomes is just as important in order to identify sub visual cancer burden, which again allows early intervention re personalizing of the treatment plan.

In effect, turning a once terminal clinical situation for most into a chronic disease for many with a potential of durable remission extended life expectancy.

From Frictionless collection of Health records into a secure patient wallet with citizen to patient education, and AI based patient engagement with <unk> to.

So point of care risk assessment medical necessity with testing and personalized management insights for providers by Med D. On.

Medication management with youth scripts, along with therapy guidance virtual tumor board capability and several platform module is in active development to support our expanding testing portfolio.

<unk> digital health strategy will bolster our mission to bring genetics to mainstream medical practice.

We will provide an integrated clinical decision support platform capabilities for coordinated and personalized tech enabled care, coupled with a seamless real world data strategy.

Leveraging active longitudinal provider and patient engagement and efficient clinical workflows for all stakeholders.

Thank you back to Johan.

Thank you Rob and thank you Vishal we're.

We're looking forward to active and important months ahead for our oncology effort as we bring new patients onto the platform introduced new tests and services for those patients and drive the scale necessary for financial performance and to build what we believe will be the most robust datasets for research and discovery available anywhere.

Before we go to Q&A I will hand, the call over to oxy win to cover the financial results and discuss the important business drivers and key metrics for NV day proxy.

Thanks, John and thank you all for joining us today.

Volumes of approximately 296000 in the third quarter of 2021 were up 89% from the third quarter of 2020, and 3% sequentially from the second quarter of this year.

Internationally, we saw volume growth that was slightly ahead of our U S business.

And represented over 21% of total available volume after the quarter.

Overall, ASP trended down 3% to $377 in the third quarter from $388 in the second quarter of 2021.

It reflects the mix increase in Q3 to women's health and international testing sale.

Which has lower asp's compared to other products.

Looking ahead to 2022, we expect asps to benefit from our launch of browser LPT in IBD testing for therapy selection.

MRV testing monitoring and surveillance all of which have higher reimbursement rate.

As we've noted in prior quarters, it is easier to understand our business and financials by providing non-GAAP metrics.

To allow for the comparison of the two sets of numbers, we urge investors to review the detailed reconciliation to non-GAAP financials included in today's press release and at the back of the slide deck.

For the remainder of the call will discussing non-GAAP numbers, including cash buyer.

Non-GAAP cost per unit defined as total non-GAAP cost of revenue divided by the number of billable units improved to $249 in the third quarter from the $261 in the second quarter due to continued progress with efficiencies in our overall operation and inventory management.

In the oncology business.

Non-GAAP gross profit was $49 million in the first quarter, which translate to a non-GAAP gross margin of 36% a slight improvement over the Q2 gross margin of 35%.

We expected progress as we continue to execute our margin expansion roadmap in pricing product cost variable cost productivity and revenue cycle management.

Moving down the P&L non-GAAP operating expenses was $201 8 million third quarter as compared to $199 $2 million in the second quarter. The third quarter operating expenses include costs from newly acquired businesses.

As we stated on our Q2 call the rate of growth in spending is expected to come down in the second half of the year, we continue to be committed to this call.

Scale of the business and manage return on investment at a total portfolio level.

We continue to invest in our business in the following areas research and development, which was up by approximately 146% year over year, but down by $3 $4 million sequentially.

The year over year growth was mostly driven by costs from acquired businesses, including Archer Dx.

And stock based compensation as well as program cost such as the pack bio collaboration.

In addition, selling and marketing was flat sequentially, but up by 45% year over year to support our high growth rate over 2020.

G&A expenses increased.

$1 million over the second quarter, mostly due to higher legal expenses and investment in our ERP capabilities.

Looking forward, we're planning for the growth rate of operating expenses to begin declining in the fourth quarter and into 2022.

Benefiting from continued topline growth and various margin improvement initiatives.

This year should mark the highest annual non-GAAP opex as a percent of revenue as investment levels stabilize or even slow down.

Moving to our cash position cash cash equivalents restricted cash and marketable securities totaled $1 2 billion at September 30, compared to $1 4 billion at June 30.

Cash burn was $286 million in the third quarter, including cash pay to finance and close acquisition.

Excluding acquisition and related expenses, our firm for the quarter would have been $148 million.

We generated $114 million of revenue in the third quarter, a 67% from the gross increase from the third quarter of 2020.

The revenue breakdown by product group in the third quarter was as follows approximately.

<unk> hundred $69 million.

From oncology, including Germline testing therapy selections and companion diagnostics.

Approximately $21 million from our women's health offerings, including an Ips area another reproductive tests.

Approximately $15 million from the rare diseases, and other testing covering cardio neuro and metabolic and newborn screening.

Data and platform revenue was approximately $10 million. This includes data management analytics data as a service and certain biopharma and patient identification program.

Revenue from also areas increased nicely year over year in the third quarter and across the past two years.

Okay.

<unk> business model is highly differentiated complex and ambitious.

In the initial listening tour shortly after I joined the team.

Many of you expressed a desire to better understand our business as we continue to grow and scale.

We appreciate your support and are taking a number of steps to help all of our visibility into the fundamentals of our business.

First we plan to continue to provide revenue trend analysis for each of our categories.

Second our business leaders and subject matter expert will be joining our quarterly calls to provide deeper insights into the business as vishal and rock have today.

Third going forward, we will be providing clear visibility to a set of key metrics of our business with selected and develop these metrics based on their operational significance and the ability to accurately describe returns on investment internally and for M&A activity.

These categories include <unk>.

Expansion of our commercial access points, so clinics hospital system or pharmaceutical partners.

Growth of our patient population and patients available for data sharing.

Revenue per patient, who are testing our services business and in the future annual recurring revenue as our SaaS business ramps up.

New product vitality measure it by revenue contribution of new products developed or acquired over the last three years. This will also connect strategic investment decisions to the freshness of the portfolio.

We'll continue to measure our ability to expand margins by trajectories of gross margin and variable cost productivity.

Last but not least the category of leverage.

In addition to the standard operating expenses metric, we plan to report operating cash flow as a percent of revenue to show scale and improvement.

Our future our objective is to focus on net operating cash flow.

It is important to note that success would not be measured by increasing every category in every quarter.

This is to be a useful dashboard it will signal both progress in area that needs attention as time goes by.

Our objective in sharing these metrics within the framework is to offer more transparency into our complex SaaS changing business and to provide a consistent balanced perspective on our performance as we continue our journey to bring genetics to billions of people.

We intend to roll these out at the end of this year and maintain our quarterly update as we move forward.

As to our guidance for the year in August we provided a revenue guidance range of between 475 and $500 million for 2021.

The result of Q3 and the greater than expected seasonality. This year has led us to be slightly more cautious and to adjust this.

Protection to a range of between 67, 60% to 70% growth for the year were revenue between 450 and $475 million.

Thank you Michelle.

Thank you Roxie.

We've long shown this ramped view of our business model in an effort to describe how we see the evolution of global genomic medicine.

Our progress in addressing patient needs throughout their lifespan and the emergence of our platform and data services demonstrate progress up the curve into the genomic network era, where genetic information can be shared on a global scale to diagnose more patients correctly earlier, and bringing therapies to market faster.

We continue to believe that these new connected capabilities, our best developed delivered and supported from an integrated platform.

The mortgage landscape, we can cover by way of genetic test content. The more patients we can add to our network and the more patients in our network combined with more information, we can provide or adjust on their behalf.

We and our partners across the healthcare ecosystem can do for them.

The next steps in building out our platform include continuing investment in the development of our data analytics and real world evidence capabilities.

For many years, we have built an extensive technical staff of processing pipeline interpretation reporting and customer service capabilities.

And we continue to acquire an integrated portfolio of digital products and services that enhance customer experience through personalized insights improve workflow and other tech enabled services.

With that we'll now turn the call over to the operator for Q&A.

At this time I would like to remind everyone in order to ask a question press star followed by the number one on your telephone keypad will pause for a moment to compile the Q&A roster.

Yes.

Sure.

Your first question comes from the line of Dan Brennan with Cowen <unk> Company. Your line is open.

Great. Thank you thanks for taking the questions guys.

I guess first question just kind of more near term.

Obviously discuss it seasonality with Covid and it's going to persist into the fourth quarter can you just give us a sense of.

Maybe pacing in the quarter.

What's baked in on the fourth quarter and were there any issues with supply chain that made it that kind of impacted your ability to meet customer needs.

Yes, so thanks, Dan appreciate it.

Not really no real comment on Q4, except the typical seasonality pick up typically there is a pick up from Q3 to Q4, we are indeed seeing that.

With that said as we stated it's coming off from a little bit of a debate as it were from that from that.

Summer seasonality.

Picked up a week or two later than we typically see.

And while it's difficult to ascertain theres definitely some COVID-19.

<unk> in there. So we're just we're just kind of being a little circumspect coming off of that end of Q3 into the rest of year, but we don't we don't see anything unusual now about Q4 in front of us as for the supply chain Roxie.

I'm not sure if there's anything new on that.

I think it's pretty consistent.

<unk>.

The previous quarters.

So.

And then kind of across the board, yes, sorry go ahead.

Alright.

Yes.

Go ahead sorry.

Sorry, I was going to ask kind of across the four segments really oncology women's health, mainly and then obviously the other two what were any of the businesses impacted more acutely than others.

And could you give us a sense I know you don't guide by segment, but maybe.

Maybe just stepping back big picture, when we think about.

Kind of the growth aspirations for <unk> like.

Any sense on how we should be thinking about kind of between oncology and women's health.

How those kind of fit and as we look out within the context of your.

Kind of long term growth plans.

Yes, I would look at those growth areas like end market.

Top categories.

And across the board in Q3, we didn't really see no one particular area weaker or stronger than others or pretty consistent indication that we had.

Traffic in.

Seasonality longer seasonality issues in Q3 that we experienced.

And going forward from a revenue perspective again, we look at this.

Go forward revenue.

Guidance from a revenue perspective.

Also do.

We do not see a change in trend.

And.

Also this quarter, we start to introduce some metrics.

Concept of metrics and going forward will be some data to help you understand how to predict and measure the success of the platform across all the key categories that will be in the number of patients that coming into our platform and revenue per patient as well as at the access point account level for us.

And then maybe one final one you put up the slides on all the timing for all of the cancer.

Products coming out across therapy selection of MRV is anything new there in terms of the timing I'm not as close exactly there was a lot of products out there I'm just wondering from what you previously communicated about timing.

Is everything on track anything slipper advance maybe just some color on that.

Yes.

Starting on as Vishal finished no nothing new.

<unk>.

We had we had talked earlier about the public invisible stratified FDA application and as we've laid out that is that is now actually two or three different discussions with the FDA.

That will progress so that as that is old news, but reflected in vishal overview today.

Elsa that nothing really new we tried to put a little more.

Kind of detail.

Behind that kit launches the different regional approvals.

One of the main events as our <unk> or we call it personalized cancer monitoring testing.

Testing that is that is in market now as we speak.

And then the roadmap Vishal spoke about.

Look forward to when we hit that hard commercially we do expect revenue impact that for.

That does impact our revenue for.

For next year not not not.

Necessarily for this year, even the end of this year, but nothing nothing new there.

Michel anything I Miss No I think you captured it.

We're on track.

Okay, Alright, guys, great. Thank you very much.

Yeah.

Your next question comes from the line of Savant.

Savant with Morgan Stanley Your line is open.

Hey, guys good evening.

So Sean I do want to go back to the.

And to the earlier question on the guide I know you.

Last time, we had spoken you had mentioned sort of.

Speaking in Delta uncertainty into the numbers and absent the impact youre expecting to come in at or above the high end.

Since then you've now sort of lowered the midpoint by about $25 million. So.

Can you just help us sort of build a bridge there I mean was it was it sort of very concentrated towards three weeks in.

Perhaps that you saw much greater weakness than you had anticipated and in terms of the bounce back are you sort of calling for a V shaped recovery here, essentially or or a more sort of metered ramp back to normalized volumes as we head into 'twenty two.

Yes, absolutely I can give more color on that on our last call. We were checking in literally up to the day or two before and saw really strong growth.

New account formation et cetera.

Made an estimate of both seasonality and anything Covid impact.

We did we did see.

As Rafi mentioned it hit all categories.

Product categories equally which is a typical signature of the seasonality that's the seasonality signal.

And also you can also see it kind of relative.

Relative geographical locations X U S versus U S.

The thing is we saw I'd say it kind of came a week week and a half early and it persisted a good two to three weeks later than we usually see it and.

And that gave us some pause as we look to the end of the year again.

It looks like a seasonality signal, we we don't know how much to ascribe to COVID-19 in the detailed volume loss data those are volume loss kind of calls from the sales team. It clearly had to do with either people not being in offices or not going into offices and so obviously, there's a COVID-19 impact there. We just it's really hard to tease out. So then as we look at as we look at Q.

Sure.

This is ware.

Given given where we kind of enter the quarter. We were just going to take a circumspect view in <unk>.

Adjust our view to the end of the year.

We are at a different spot than we were.

This last quarter, but the only thing it reflects that.

<unk>.

That bit of a dent in our in our annual number that Q3 delivered we do see signs of recovery, we expect it to perform seasonally within range and get on continue with our kind of reverse.

Relatively industry leading growth.

Got it.

And then couple of one sort of looking forward to 'twenty two.

A couple of quarters, now, where you've called out the international outpacing U S growth.

How do you expect that business to trend on a go forward basis.

In particular pockets of strength that you'd like to highlight and then.

On the early detection assay development front for cancer.

Any incremental color there are voices.

The timeline that you mentioned of 22.

So ex U S, particularly led by when Vishal walk through all of the ex U S. It's country by country or even region regionally specific approvals forward.

Therapy selection and monitoring.

That's obviously, that's a high high growth area Theres, a lot of pent up demand there and it's also a market where.

A centralized service based on the U S isn't going to be is it going to be the best thing to serve those clients. So we're we expect that to contribute more.

The other thing is our pharma sponsored patient identification programs, the more global reach to better and.

We would expect those also to continue they.

They do continue to put more momentum.

All regions.

Happy to find patients wherever but it does allow us to look more outside the U S than the more traditional clinical testing business with the U S payers and Medicare reimbursement et cetera.

So those are those are drivers there we think that will continue.

To support to buoy, our ex U S. Ex U S revenue will continue to see that as an important.

And important.

Part of the growth story.

I think your second question was on early detection and I just want to be clear, we're not we're not calling out a launch of early detection in 'twenty two.

We are both.

Currently doing the.

Our own work on what the our own technologies will look like.

In the trials and validation and also of course looking at the bio scenario as well, but we don't we don't have in most of the action.

Our actions for next year is going to be in risk.

Risk assessment therapy selection, and monitoring and really kind of taking our product portfolio.

Through that end from start to finish for our oncology patients.

Got it and then one final one for me are John as we think about the price versus volume offset heading into 'twenty two in light of the Pam Scott on the.

Rather treat cancer testing piece of the business.

Are your expectations there.

Yes.

So.

The PMI impact is going to be a little different than in past years, we've dug into the details I want to affect all of our history cancer business.

It's not important why I'll, just say like there will be some but it won't be the full impact.

We will probably do a little more work on that to try to try to guess exactly what that will be.

But I think in the context of our overall cancer business overall cancer oncology revenue, it's becoming less and less of it.

Of an impact.

I Wouldnt I don't think it can be immaterial next year, but it's certainly going to be a lot less material than it used to be and I think going forward. After that it will decline to the point of materiality.

As I mentioned it will be it wont be across the board and we're still kind of working on the details on that as we speak.

Got it very helpful. Thank you.

Thanks.

Your next question comes from the line of Tycho Peterson with Jpmorgan. Your line is open.

Okay. Thanks.

Can you help us think about gross margins coming out of <unk>, you said 45 to 50 pretty clear.

Now kind of coming out at $35 five for the third quarter. So how do we think about gross margins after the fourth quarter and going forward.

Yes, no we are not where we want to be on gross margins.

There is a little bit of that is volume.

That is still some inventory stuff pull through from acquisitions.

The biggest biggest thing there is a mix mix on pricing.

There hasnt been a change in relative growth rates of our different revenue buckets to fact that reproductive is growing faster, we're getting more growing more market and taking more share there for <unk> in particular, but also carrier.

It drags down price a bit and I would say over the last couple of years. Our investments has our investment needle has moved much more towards market creation volume growth new products et cetera.

Less as focus on fundamental Cogs takeout is perhaps in years kind of speak three to five six years ago.

And so we're not exactly where we want to be.

With that said.

With between a series of new products that we know will be higher price higher margin.

Sure.

One work on Cogs improvement.

And then just good old fashioned volume economies of scale, we are confident that.

It will start showing progress back to our 50% target and people.

As Russ you laid out in our in our business dashboard people will see that people will see that every quarter as measured against our other our other key business metrics.

And I guess, along those lines are you able to I know youre not guiding for 'twenty, two yet, but just on opex, you're able to give us a rough sense of how you are thinking about opex for next year overall.

Think about screening or you're going to start to spend on studies and do you need to do and that is patient studies like everybody else or how do you think about the magnitude of spend around screening.

Yes, let's do.

First of all why don't do screening first where we are and then Rocco will speak to next year is that if we can reverse yes, yes.

On the screening side right. We're right now looking at multiple different avenues silent on what we need to do there. The goal here is not necessarily too.

Investing 10000 patient studies or anything like that is really to see.

What do we need to do to be successful in this area and as Sean mentioned, you know do we build or do we buy in this area. So thats something that will become a lot more clear in 2022 at this point.

Yes on the Opex front.

We are now guiding that yet.

We're very focused on.

Driving the path feature.

Between the strength of our balance sheet as well as long term growth investments across the portfolio.

Not to trade.

Long term with short term or vice versa. So that balance is something we're very focused on.

We'll continue to invest in our business.

And in some of the long term strategic initiatives, we've been doing and also keep a keen eye on the returns.

Please take note of.

The effectiveness of those investment.

That being said our business has scaled to a level of that revenue and opex investments are both large enough to have enough levers to achieve.

To be very focused on trying to have some drivers identified drivers to focus on our operating cash flow objectives, and so there's a long way to say.

You should expect growth investment.

Key areas and continue to grow that.

Operating leverage from Opex should continue should see some improvement there.

Q4, starting Q4 and next year for sure.

Okay. That's helpful. And then last one from me just on citizen.

You never broke out revenues from the acquisition I'm. Just curious if you can give us any rough sense in how you think about synergies with the rest of the business.

Yes, the citizen revenue I mean, it's small enough.

Notwithstanding calling out alone with that said last quarter, we broke out our data essentially are the.

Revenue on our from our platform data data analysis services other services.

The citizen revenue will go in there.

And Thats, where it fits nicely with a lot of our other data data data analysis services.

And we do we do have.

We do have a good view.

To that line growing more rapidly than the other revenue buckets in the quarters and years to come.

And feel that will be really important as we pointed out. This is a really important part of the growth story.

We're hitting that.

The middle area of our business model with these assets as a key as a key part of it.

Okay. Thank you.

Yes.

Your next question comes from the line of Matt <unk> with Goldman Sachs. Your line is open.

Hi, everybody thanks for taking my questions.

Sean maybe just the first one kind of big picture looking at.

The chart usually show the last chart on slide on the evolution, and where you are and where M&A was part of your strategy and then coupling that with the comments.

Kind of more rationalized spend to a certain degree I'm just wondering from an M&A perspective should we expect a bit of a pause here, maybe a shift towards more organic related investments going forward or is it still if opportunities come up.

And they are attractive and make sense for the business, you'll still examine them I'm just trying to wonder where youre thinking in terms of organic versus inorganic as we move into 'twenty two.

Yes, no I appreciate the call and good opportunity to provide more clarity just to be clear we still believe.

Corporate element M&A is a key part of the growth strategy going forward.

As Rusty pointed out we are.

In our metrics dashboard, we are looking at operating leverage.

Cash flow as a percentage of revenue and as we've always said the goal.

<unk> single financial goal is massive and defendable operating cash flows and so that's kind of where we're heading but but just to be clear that those dose that that is in the context of Av.

Growth in investment.

Ratio as a ratio of our revenue growth ratio of our revenue.

So we're we're tailing off the investment growth, but the absolute investment.

Underneath our of our very high revenue growth is still going to be quite high and M&A will still be a part of it.

We've.

There is only there.

There are only so many targets out there we take a look at a lot of them.

To the extent people are looking for context of kind of as we finish the call I mentioned the <unk>.

Digital capabilities patient where full capabilities digi.

Digital health and clinical decision support tools. Those are things, we are really active in and see and see great opportunities in.

With that said, we are always of course interested in things that.

Things that we can integrate into our platform and drive new disease areas new content.

And kind of further fill in for an individual from birth to death, the stages of life, which we think genomic information can be most impactful.

Great. Thanks, that's very helpful. And then Michelle maybe one for you on your timeline you spoke about.

The kits.

Rolling that out in international and in the U S. I'm just wondering how important do you think is driving that decentralisation of testing to the overall business as you see it.

I actually think it's quite important if you look at the number of cancer patients that are outside the U S. Let's just take the EU five as an example, we're talking about just as big of a market or even bigger from that perspective.

In the EU countries in particular, but also in Asia, where you can use the CE IBD.

As you know Mark you find that decentralized played a very very key role, especially in the somatic therapy portion and we also know from one of their studies I referenced in my call with the <unk> Exon 14 study out of Japan that showed the value of our products compared to the competition incomes of accurately detecting that 14, so I think.

All of this will tie together, but getting that IBD registration done as a key part of our growth strategy from oncology somatic side.

Okay. Thanks for the time appreciate it.

Your next question comes from the line of Puneet <unk> with SBB. Your line is open.

Yeah, Hi, Sean Thanks for taking the question so.

First one on ESP.

I don't know if you've covered it already but.

Sort of how did the ASP trend into throughout the quarter.

And how should we think about that sort of going forward because on one hand, you have somatic.

Has promise for higher reimbursement, but unfortunately, it's going to obviously take some time to.

To come in so there's a little bit of a gap here, where obviously, we're seeing the impact in the quarter.

So how should we think about asps being sort of this sort of near to midterm till we get to the other side when we have more somatic mgs, both tissue and potentially liquid on PCM as well.

Yes.

Thanks for the question.

ASP is.

Relevant.

Measure for us.

Certain testing products and we're paying attention to the trend without goes without saying and we're doing a lot of work in areas such as pricing and revenue cycle management.

People manage the.

Lifecycle.

Industry manage these type of metrics in the practices, we're doing a lot of work and paying a lot of attention to it. In addition, as you said right the new product we plan to introduce in 2022.

Potential to give us a higher price point.

But going forward.

We will give you a more consistent and balanced perspective too.

Addition to this we continue to measure ASD, but in addition to the ICU.

Provide you a set of metrics to help you measured progress.

The entire platform.

The number of patients as we said coming into our network and number.

Revenue per patient and number of patients that are giving us consent agreements.

Total data sharing and down the road.

Yes.

All these measures will over time will depart from the BSP straight DST calculation.

Got it okay.

And then in terms of MRV. Obviously this market is rapidly expanding obviously there is significant potential.

But as we think about China as we think about the positioning of PCM in that market and the differentiation that it brings to the market.

Just trying to understand I mean, you gave.

Details around them.

Maria trial, a couple of other areas, where you are investing into data and trials. So that's really helpful. But just trying to understand how does the assay sort of differentiated I know things are early right now, but how does does differentiate either in performance or in sort of the adoption that you would expect from PCM versus the two other <unk>.

<unk> that are placed in the marketplace right now and potentially others coming to this market.

Yes.

Appreciate the question I think again to set context.

We're fairly certain that.

A lot of the disease areas that we are in getting into or into.

Over time and again, we think this is soon.

We'll see.

This will shift to identifying who is at risk in the first place and then setting them up to better monitor and better prevent that disease.

Zen direct targeted therapy.

When the when the disease diagnose and then that will that will lead directly into the follow up monitoring of that disorder.

And it is our genuine belief that the companies that can provide those those services across that arc of care will be in a position and can help the clinicians not.

Not just the world's experts in molecular oncology, but all oncologists.

Understand.

And Ah patients what to do next is going to be the key is really going to be the key to getting getting this information used as standard of care.

So.

One answer to your question is in the context of the broader arc location care patient care and all of the digital tools and services that rocket covered on the call.

That's one part of how we intend to have or the provisioning of our genomic information used.

Two differential advantage for a given patient.

For that for the actual head to head I think actually Vishal was just at the TMT conference and I'll, let them speak to some observations kind of fresh off fresh I heard discussion with all the key opinion leaders there and yes. Thanks for the question.

It's an interesting time for us here at the whole <unk> concept is really starting to.

Both oncologists and surgeons are trying to pay a lot of attention to it now but it is still very much starting right. There is a lot of opportunity for growth for for all companies in this space and I think the big question that you're asking is what differentiates you guys from what other people are doing.

I'd say here, it's like everybody talks about sensitivity and specificity, but what's really important here is to make sure that you can have something that is tumor derived which is something that we do we make sure that you can be sensitive enough by having a large number of variance that can be detected, which we can add a third thing obviously is to.

Reduce the risk of a false positive result, which we can with the App technology that we got out of the Archer Dx acquisition. So all of them together and then on top of that you put it altogether and then you go how do you <unk>.

Enabled testing to occur we can do that both in a centralized model and a decentralized model through a kit based approach. So I think all tied together with the tools that <unk> was talking about with the software tools, which then allows for the patient outreach to be there the education to be there I think we cannot actually we are well positioned to be successful in this space.

Got it that's super helpful and if I could also just ask my last question on.

Sean.

Traditionally <unk> has been a pass price rationalization.

Rationalized that are in the market if I can say.

Especially in Germline setting so now.

As you look forward to next year.

And beyond should we start viewing the company as there is some.

Well positioned into.

Both competing on data and price rationalization or just help me understand that dynamic based on what Vishal and rocket provided today.

Yes, no I think no I appreciate the question I think first it's worth it's worth noting that.

We're a price exist.

And Vijay has always taken that price.

Where we have used price to grow volume or used price to grow markets. It's where there is no reimbursed criteria for a given service that we actually think is really valuable for the for extending life of our customers.

So I just want to make that distinction first and foremost.

The price game and our cost advantage, we have put to use to grow markets and grow volume and get this information in the hands of individuals who otherwise the system our industry wasn't going to wasn't going to serve.

We view it very much the same way in oncology going forward.

The nice thing here is there.

There is well established and very high pricing for the for the specific tests and services that Vishal mentioned.

There is an immense amount of pent up demand.

The digital health tools that.

That rock mentioned, we think theyre going to be essential to unlock the utilization of that information because in frankly.

As Richard pointed out Theres very few key opinion leaders that are kind of actively thinking about monitoring and use of the amount of information.

Even while as Ross pointed out there is most oncologists are coming around to the perspective that the genomic variation in the patient's cancer. It has something to say about how it's treated but very few of them are really adept theyre comfortable with actually having that conversation and if any of you listening. This call is that a loved one try to battle cans or try to get them that information.

In a timely manner to make decisions it's still.

It's very much a workflow and data issue at this point in time. So we think both are important.

But just to be clear really high pricing offered by CMS and anybody else we will take.

And then for the remaining 28 million cancer patients around the globe that don't have reimbursement coverage, that's where then our cost advantage and our distribution. We think can really come into play whether serving at the individual or the government level.

Great. Thank you.

Your next question comes from the line of Brian Weinstein with William Blair. Your line is open.

Hey, Thanks, Thanks for taking the question guys. Good afternoon.

So obviously I mean genetic testing is not as routine as it should be and you guys are clearly focused on improving.

On improving that I'm.

I am curious on studies like the American Heart Association study that you talked about how meaningful are.

Are these studies I mean do you have any kind of information about how <unk>, how genetic testing changes on any of these do you have any information on kind of what the uptake is in sort of genetic testing in key disease States and then second question is around.

The DTC stuff, that's going on I don't know how broadly it is here in Chicago I can't turn on my TV and in VK.

On television and talking about the importance of genetic information. So can you talk about the thoughts behind that strategy in any returns that youre seeing on that at this point. Thank you.

Great.

Thanks, Brian So let's see for.

Tell you what I can answer the second one right now.

Our DTC efforts.

In fact, you happen to be living in our in our pilot court target region. So.

For all of you who are thinking well I don't see any <unk>, that's because we specifically targeted the city of Chicago.

And that's in an effort to test out a variety of different media.

And in.

Direct marketing approaches, which we do think are in long term going to be essential as we start talking about everybody in modern medicine, not just not just folks that are our health care provider.

Sales effort.

You can get at so Thats I would take on is still early days, and we're learning and evaluating and adjusting the upfront workflow and support needed to.

To stand up patients and and also frankly clinicians that respond.

To direct to direct marketing so that's what that's what you're experiencing there.

Thats.

Like I said learning and incorporating into our longer term sales and marketing roadmap.

Okay.

Oh, I'm, sorry, Brian I, just im sorry, the first part of your question.

The utility of the studies as the AJ one, yes, so here's where our view is that these are these are incredibly important and I think if we can just go back many years.

We at one point in time, we were met with the question.

With a total market size of $250000.

Jerry breast and ovarian cancer patients a year.

Why why would we even bother with the idea in the first place.

And it is because of those studies. The study is just like that one that we have contributed to year. After year. After year, we have seen the addressable market for hereditary breast and ovarian cancer expand dramatically.

<unk> with guidance coming from key opinion leaders in the space that is very likely.

Youll coverage extension deals.

Input being given is that reimbursement should go for anybody with registry breast ovarian cancer testing in that and that that is that is a game that is only achieved by just those studies.

We've seen that in prostate cancer as well, we will see it in other cancers. Accordingly, and then also on the pediatric medicine side.

Just getting the data out there and publishing just how impactful genomics can be from a health economic perspective, and showing the diagnostic yields north of 40% to 50% for a lot of kids with these rare disorders.

That we feel are essential activity to growing the size of the market.

Unfortunately, it doesn't show up right away.

And it doesn't turn into addressable highly reimbursable market right away, but it does over time. The good news is we've been at it for over a decade and and we'll just we'll continue we'll continue down that path.

Alright, thank you.

Okay.

Your final question comes from the line of Dan Leonard with Wells Fargo. Your line is open.

Hi, good afternoon, and thanks for all that detail in the oncology pipeline. So just a couple of questions first off on PCM.

Is holding you back from putting more commercial resources behind the assay sooner.

Yes.

Little bit of it is wanted to get the Cogs profile right and we spent a little bit of time on Cogs today.

There is a constant balance between us driving revenue volume north and incurring the cost, particularly of new product introductions I think as Roger pointed out our mature product lines are pushing 70% gross margins the new ones tend to be lower.

And even a product with good reimbursement.

It tends to be lower causes we kick it kick it out so that's one.

Two is the scale of the operation.

It's a little more complicated.

Operation to get up and running them, just getting saliva blood samples, we want to make sure and get that right have the customer experience be where it needs to be and then also and as we pointed out we get our we got our view on reimbursement.

For our offering in January of next year.

And driving too much volume before then.

Again, Lisa probably mentioned before so those are the factors going into the decision on how hard to push it commercially.

That makes sense and then Sean it was unclear from the graphics from a data perspective, what data youll have that launch in Q2 of 'twenty two the transfer ask Maria it looks like that could come out at any time in 2022.

I can try and answer that so the tracer ex publications are already part of it's out already on the lung cancer space and it will be more of it coming out, but very close to launch it right after launch and that as we get some of these retrospective studies done better with that are in process right now we expect a loss.

All of that to come out in the early part to middle part of 2022.

Helpful color. Thank you.

There are no further questions at this time, Mr. George I'll turn the call back over to you.

Thank you and thank you again for joining the call today.

In many ways the future in which genetic information drives everyday medicine.

Is coming into view.

And we'd like to offer the diversity and growth across our entire business and the kind of the emergence and increase growth profile from our from our data business. We believe will be a significant driver of value for patients providers. All the stake held stakeholders in the modern health care ecosystem. So thanks again for joining us and I look forward to next next time on the call are future future conferences.

Ladies and.

Gentlemen, thank you for your participation. This concludes today's conference call you may now disconnect.

Please wait the conference will begin shortly.

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